Portugal may need second financial bail-out

My how the world has changed when credit rating agencies become more powerful than sovereign countries.

International credit ratings agency Moody’s Investors Service has downgraded Portugal’s debt to junk status and sounded a warning about its future borrowing.

Moody’s said there was a growing risk that Portugal would need a second bail-out before it was ready to borrow money from financial markets again.

Moody’s was concerned that if there was a second bail-out, private lenders might have to contribute. Moody’s cut Portugal’s rating by four notches from from Baa1 to Ba2.

There are discussions underway about banks that have lent money to Greece having to wait longer to be repaid.

Moody’s said that prospect would scare private investors and make it even harder for Portugal to borrow money commercially again.

It said the talk of a private bail-out was “significant not only because it increases the economic risks facing current investors but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms”.

Portugal, Greece and the Irish Republic were all given bail-out loans to give them time to repair their economies so they could borrow money normally again.

But Greece has already had to start negotiating a second bail-out.

The agency also said it was concerned that Portugal would not be able to achieve the deficit reduction targets set out as conditions for its first bail-out from the European Union and the International Monetary Fund.

It blamed this on “the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system”.

Portugal was supposed to cut its deficit to 3% of its gross domestic product by 2013, from last year’s 9.1%.

Newswarped thinks there is little chance of Portugal, Greece, Ireland and probably Spain getting themselves out of debt to the international loan sharks any time soon.

The only thing that may save them is a significant global economic upturn in the next couple of years.